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Housing Construction Cycles and Interest Rates

Author

Listed:
  • Laura Berger-Thomson

    (Reserve Bank of Australia)

  • Luci Ellis

    (Reserve Bank of Australia)

Abstract

Housing investment is one of the most cyclical components of GDP. Much of that cyclicality stems from the sector’s sensitivity to interest rates, but it is also possible that construction lags generate intrinsic cyclicality in this sector. Although the housing sector is generally considered to be more interest-sensitive than the economy as a whole, the degree of this sensitivity seems to vary between countries and through time. In this paper, we model the housing markets in Australia, the United States, the United Kingdom and Canada using a structural three-stage least-squares system. We document the variations in the housing sector’s cyclicality and sensitivity to movements in interest rates, and attempt to determine the underlying causes of these differences.

Suggested Citation

  • Laura Berger-Thomson & Luci Ellis, 2004. "Housing Construction Cycles and Interest Rates," RBA Research Discussion Papers rdp2004-08, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp2004-08
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Goodness C. Aye & Stephen M. Miller & Rangan Gupta & Mehmet Balcilar, 2013. "Forecasting the US Real Private Residential Fixed Investment Using Large Number of Predictors," Working Papers 201348, University of Pretoria, Department of Economics.
    2. Katarzyna Budnik & Michal Greszta & Michal Hulej & Marcin Kolasa & Karol Murawski & Michal Rot & Bartosz Rybaczyk & Magdalena Tarnicka, 2009. "The new macroeconometric model of the Polish economy," NBP Working Papers 62, Narodowy Bank Polski, Economic Research Department.
    3. repec:ipg:wpaper:2014-465 is not listed on IDEAS
    4. Goodness C. Aye & Stephen M. Miller & Rangan Gupta & Mehmet Balcilar, 2016. "Forecasting US real private residential fixed investment using a large number of predictors," Empirical Economics, Springer, vol. 51(4), pages 1557-1580, December.
    5. Luci Ellis, 2006. "Housing and Housing Finance: The View from Australia and Beyond," RBA Research Discussion Papers rdp2006-12, Reserve Bank of Australia.
    6. Gabriele Galati & Federica Teppa & Rob Alessie, 2013. "Heterogeneity in house price dynamics," DNB Working Papers 371, Netherlands Central Bank, Research Department.
    7. Luci Ellis & Mariano Kulish & Stephanie Wallace, 2012. "Property Market Cycles as Paths to Financial Distress," RBA Annual Conference Volume,in: Alexandra Heath & Frank Packer & Callan Windsor (ed.), Property Markets and Financial Stability Reserve Bank of Australia.
    8. Erol, Isil & Unal, Umut, 2015. "Role of Construction Sector in Economic Growth: New Evidence from Turkey," MPRA Paper 68263, University Library of Munich, Germany.
    9. World Bank, 2006. "Urban Land and Housing Markets in the Punjab, Pakistan," World Bank Other Operational Studies 8280, The World Bank.
    10. Luci Ellis, 2010. "The Housing Meltdown: Why Did It Happen in the United States?," International Real Estate Review, Asian Real Estate Society, vol. 13(3), pages 351-394.
    11. Gabriele Galati & Federica Teppa & Rob Alessie, 2011. "Macro and micro drivers of house price dynamics: An application to Dutch data," DNB Working Papers 288, Netherlands Central Bank, Research Department.
    12. Naik, Prasad A., 2015. "Marketing Dynamics: A Primer on Estimation and Control," Foundations and Trends(R) in Marketing, now publishers, vol. 9(3), pages 175-266, December.
    13. Judith Yates, 2011. "Housing in Australia in the 2000s: On the Agenda Too Late?," RBA Annual Conference Volume,in: Hugo Gerard & Jonathan Kearns (ed.), The Australian Economy in the 2000s Reserve Bank of Australia.
    14. Frédérick Demers, 2005. "Modelling and Forecasting Housing Investment: The Case of Canada," Staff Working Papers 05-41, Bank of Canada.
    15. Wadud, I.K.M. Mokhtarul & Bashar, Omar H.M.N. & Ahmed, Huson Joher Ali, 2012. "Monetary policy and the housing market in Australia," Journal of Policy Modeling, Elsevier, vol. 34(6), pages 849-863.

    More about this item

    Keywords

    cycles; housing construction; interest rates;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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